While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Meritage Homes Corp (NYSE:MTH).
Meritage Homes Corp (NYSE:MTH) has seen a decrease in support from the world’s most elite money managers recently. Meritage Homes Corp (NYSE:MTH) was in 20 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 30. There were 23 hedge funds in our database with MTH positions at the end of the first quarter. Our calculations also showed that MTH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Matthew Lindenbaum of Basswood Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to analyze the latest hedge fund action surrounding Meritage Homes Corp (NYSE:MTH).
Do Hedge Funds Think MTH Is A Good Stock To Buy Now?
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MTH over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Meritage Homes Corp (NYSE:MTH) was held by Fisher Asset Management, which reported holding $115.6 million worth of stock at the end of June. It was followed by Balyasny Asset Management with a $63.9 million position. Other investors bullish on the company included Basswood Capital, Shellback Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Meritage Homes Corp (NYSE:MTH), around 1.53% of its 13F portfolio. Shellback Capital is also relatively very bullish on the stock, dishing out 1.48 percent of its 13F equity portfolio to MTH.
Judging by the fact that Meritage Homes Corp (NYSE:MTH) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers who were dropping their full holdings heading into Q3. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, worth about $7.1 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dropped about $6.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Meritage Homes Corp (NYSE:MTH) but similarly valued. We will take a look at Diodes Incorporated (NASDAQ:DIOD), M.D.C. Holdings, Inc. (NYSE:MDC), ExlService Holdings, Inc. (NASDAQ:EXLS), Bed Bath & Beyond Inc. (NASDAQ:BBBY), Hilton Grand Vacations Inc. (NYSE:HGV), AdaptHealth Corp. (NASDAQ:AHCO), and Applied Industrial Technologies Inc (NYSE:AIT). This group of stocks’ market valuations resemble MTH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DIOD | 18 | 155512 | -3 |
| MDC | 22 | 51990 | 9 |
| EXLS | 15 | 60301 | 1 |
| BBBY | 21 | 363664 | -2 |
| HGV | 34 | 973469 | 0 |
| AHCO | 20 | 366938 | 3 |
| AIT | 18 | 57979 | -3 |
| Average | 21.1 | 289979 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $324 million in MTH’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand ExlService Holdings, Inc. (NASDAQ:EXLS) is the least popular one with only 15 bullish hedge fund positions. Meritage Homes Corp (NYSE:MTH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MTH is 35.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on MTH as the stock returned 10.7% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.
Follow Meritage Homes Corp (NYSE:MTH)
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Disclosure: None. This article was originally published at Insider Monkey.
